OPKO Health, Inc. — 2012 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2012; it also presents unaudited fourth-quarter results. OPKO is a multinational biopharmaceutical and diagnostics company with commercial pharmaceutical and active pharmaceutical ingredient operations, a CLIA-certified laboratory, and diagnostic and drug candidates in development. Its principal reporting segments are pharmaceuticals and diagnostics.
Financial performance and liquidity
Amounts below are in U.S. dollars; annual figures are for 2012, with 2011 comparisons.
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $47.0 million | $28.0 million |
| Gross margin, excluding intangible amortization | $19.2 million (40.7% of revenue) | $10.7 million (38.4%) |
| Operating loss, continuing operations | $37.3 million | $23.2 million |
| Net loss | $29.5 million | $1.3 million |
| Net loss attributable to common shareholders | $31.3 million; $0.11 per share | $3.7 million; $0.01 per share |
| Net cash used in operating activities | $25.4 million | $18.5 million |
| Cash and cash equivalents at year-end | $27.4 million | $71.5 million |
| Working capital | $26.3 million | $80.8 million |
| Total assets | $289.8 million | $229.5 million |
At December 31, 2012, current liabilities were $52.4 million. Disclosed borrowings included $15.2 million on short-term credit lines and $6.2 million of mortgages and other debt. OPKO also reported $34.2 million of long-term liabilities, principally contingent consideration and deferred tax liabilities. Capital expenditures were $1.5 million. No separate operating margin percentage is stated; operating loss was $37.3 million.
Fourth-quarter 2012 revenue was $16.3 million and gross margin, excluding intangible amortization, was $7.4 million. Continuing-operations loss was $1.1 million and loss attributable to common shareholders was $1.1 million. In fourth-quarter 2011, continuing operations reported income of $10.4 million and common shareholders’ income of $17.9 million, reflecting unusual full-year 2011 items including the ophthalmic business sale gain and a larger income-tax benefit.
Material changes versus the prior period
- Revenue rose about 68%, mainly from acquired FineTech, Farmadiet and ALS operations and SciGen; Chile revenue also increased. Mexico revenue declined, and management cited pricing pressure in Chile and Mexico.
- Gross margin increased in dollars, supported by FineTech and Farmadiet, but operating loss widened as selling, general and administrative expense rose to $27.8 million and R&D rose to $19.5 million. Intangible amortization increased to $8.3 million.
- Net loss increased substantially from 2011, when results benefited from the $10.6 million gain on the sale of the ophthalmic instrumentation business and a $19.4 million income-tax benefit. The 2012 tax benefit was $9.6 million.
- Cash declined by $44.2 million during 2012. Acquisitions and investments used $24.8 million in investing cash flow; financing provided $6.0 million. Working capital fell $54.5 million year over year.
- Acquisitions expanded the commercial and diagnostics base, including Farmadiet, ALS and OURLab. OURLab was acquired for a stated purchase price of $42.3 million, including cash and stock consideration.
Outlook, risks and unusual items
- Management expects operating losses for the foreseeable future, with continued R&D spending and higher commercial and administrative costs. It stated that year-end cash and marketable securities, the subsequent convertible-note proceeds and available credit lines should cover anticipated needs and debt service beyond 12 months, subject to assumptions that may change.
- In January 2013, OPKO issued $175 million of 3.00% convertible senior notes due 2033, receiving approximately $170.5 million net proceeds. In March 2013, it acquired Cytochroma for $100 million in stock, with up to a further $190 million payable in cash or stock on development and revenue milestones.
- Key development programs included Phase 3 CTAP101 Capsules and Fermagate Tablets, acquired with Cytochroma after year-end; rolapitant, which TESARO was developing in Phase 3; and diagnostic programs including 4Kscore and a point-of-care PSA test. OPKO reported a European CE Mark for the point-of-care PSA test and planned a European launch in the second half of 2013; U.S. marketing was contingent on FDA clearance and then expected in 2014.
- Risks include clinical-trial and regulatory failure, uncertain reimbursement and market acceptance, ongoing cash burn and need for capital, reliance on collaborators and third-party manufacturers, competition, intellectual-property exposure, international and currency risks, and significant acquisition-integration demands.
- Disclosed contingencies include an OURLab Medicare claims audit under appeal and a former employee’s claim seeking damages of up to $20 million; the filing says the outcome and potential loss were not determinable. OPKO also received indemnity claims from Optos related to the prior business sale; management did not then expect a material impact.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. Management concluded controls were effective, but the assessment excluded Farmadiet, SciGen and OURLab, which were acquired during 2012.
Important facts for investors to verify
- Whether the post-year-end $175 million note financing adequately funds operating cash burn and milestone or acquisition payments.
- Progress, trial outcomes and regulatory timelines for CTAP101, Fermagate, rolapitant, 4Kscore and the point-of-care diagnostic platform.
- The assumptions, timing and potential cash or share dilution associated with Cytochroma’s up to $190 million of milestone consideration and other acquisition liabilities.
- Resolution and financial exposure, if any, from the OURLab Medicare audit, the former employee lawsuit and Optos indemnity claims.
- Whether acquired-company internal controls are brought within OPKO’s control framework and whether acquired operations deliver expected revenue, margins and cash flow.